Canada’s main stock index rose on Wednesday after the Bank of Canada flagged risks to the global economy from the U.S.-China trade battle, but left interest rates unchanged as expected.
The Toronto Stock Exchange’s S&P/TSX composite index was unofficially up 49.61 points, or 0.3 per cent, at 16,448.84.
The Bank of Canada maintained its key overnight interest rate at 1.75 per cent, but said the negative effects of the trade war were “weighing more heavily on global economic momentum than the Bank had projected in its July Monetary Policy Report.”
Separately, data showed Canada posted a bigger-than-expected trade deficit in July, a sign that the boost to the domestic economy from trade in the second quarter may not be repeated.
Ten of the index’s 11 major sectors were higher.
Health care stocks lost 1.3 per cent as Aurora Cannabis Inc. and Cronos Group Inc. dipped 2.3 per cent and 2.8 per cent, respectively.
The energy sector climbed 0.8 per cent, while the financials sector gained 0.2 per cent and the industrials sector rose 0.2 per cent.
The materials sector, which includes precious and base metals miners and fertilizer companies, added 1 per cent.
The Canadian dollar posted its biggest gain in seven months against the greenback on Wednesday on lowered expectations for a Bank of Canada interest rate cut in October after the central bank’s policy decision made no mention of future moves.
“They haven’t pigeon-holed themselves into an October cut,” said Simon Harvey, FX market analyst for Monex Europe and Monex Canada. “This is why the loonie is rallying.”
The central bank referred to deterioration in the world trade outlook but also “heavily stressed the fact that the Canadian economy has exceeded expectations in the last few months,” Harvey said.
Chances of an interest rate cut in October fell to about 50 per cent from nearly 70 per cent before the announcement, data from the overnight index swaps market showed.
The Canadian dollar was trading 0.9 per cent higher at 1.3220 to the greenback, or 75.64 U.S. cents, its biggest gain since Jan. 30.
The currency, which hit on Tuesday its weakest intraday level in 2-1/2 months at 1.3382, traded in a range of 1.3219 to 1.3343.
Stocks rebounded worldwide on Wednesday, and the U.S. Treasury yield curve steepened as easing geopolitical concerns and upbeat economic data from China helped revive investor risk appetite.
A parliamentary vote in Britain raised hopes that the nation’s no-deal exit from the European Union could be postponed, Hong Kong withdrew the contentious extradition bill at the heart of recent protests and political risks in Italy appeared to be easing, all of which brought buyers back to equities markets.
China’s services sector expanded in August at its fastest pace in three months as a jump in new orders prompted the biggest hiring increase in over a year, according to the Caixin/Markit services purchasing managers index (PMI).
“Geopolitics are lifting everything much in the way it drowned everything yesterday,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. “It’s as if the slate gets wiped clean and we’re starting from zero every day.”
“The markets are very binary,” Nolte added. “It’s either ’happy days are here again’ or ‘things are terrible and we’re falling into the abyss.’”
The U.S. trade deficit shrank in July, according to the Commerce Department, but bilateral gaps in goods trade with key trading partners widened. The closely watched deficit with China grew by 9.4 per cent as the bruising Sino-U.S. trade war raged on and the deficit with the European Union hit a record high.
The Dow Jones Industrial Average rose 237.45 points, or 0.91 per cent, to 26,355.47, the S&P 500 gained 31.51 points, or 1.08 per cent, to 2,937.78 and the Nasdaq Composite added 102.72 points, or 1.3 per cent, to 7,976.88.
The political developments in Europe and Hong Kong helped fuel a rally in European stocks, sending them to one-month highs.
The pan-European STOXX 600 index rose 0.89 per cent and MSCI’s gauge of stocks across the globe gained 1.10 per cent.
Emerging market stocks rose 1.86 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 1.82 per cent higher, while Japan’s Nikkei rose 0.12 per cent.
The U.S. Treasury yield curve was at its steepest in two weeks as improving risk sentiment sent longer-dated yields edged higher.
Benchmark 10-year notes last rose 3/32 in price to yield 1.4556 per cent, from 1.466 per cent late on Tuesday.
The 30-year bond last fell 4/32 in price to yield 1.9552 per cent, from 1.95 per cent late on Tuesday.
Fresh doubts about the scale of the European Central Bank’s stimulus caused the euro to rebound, while the dollar continued its retreat from a more than two-year high against a basket of major world currencies. The pound sterling recovered as efforts to stop a no-deal Brexit advanced.
The dollar index fell 0.51 per cent, with the euro up 0.46 per cent to $1.1023.
The Japanese yen weakened 0.33 per cent versus the greenback at 106.30 per dollar, while sterling was last trading at $1.2205, up 1.00 per cent on the day.
Oil prices rose with the tide, with WTI crude on track for its biggest daily percentage increase since June 10, boosted by easing geopolitical tensions and the positive news about China’s services sector.
Oil prices rose more than 4 per cent on Wednesday, boosted by a wider market pickup on positive news from China, after three days of losses due to fears about a weakening global economy.
Brent futures rose $2.44, or 4.2 per cent, to settle at $60.70 a barrel, while U.S. West Texas Intermediate (WTI) crude gained $2.32, or 4.3 per cent, to $56.26.
That was the biggest daily percentage increase for WTI since July 10.
Stock indexes worldwide rebounded as easing geopolitical concerns and upbeat economic data from China brought buyers back to the equities market.
A private survey showed that activity in China’s services sector expanded at the fastest pace in three months in August as new orders rose, prompting the biggest increase in hiring in more than a year.
In addition, investor risk appetite was further revived after Hong Kong withdrew the contentious extradition bill at the heart of recent protests.
China is the world’s second-largest oil consumer and largest importer.